Is Now the Right Time to Change Health Insurance? 4 Questions to Ask
If your employer announced it’s now offering open enrollment on health insurance, you may wonder whether you should be changing your plan.
Due to the impact of the coronavirus, the IRS issued a ruling that allows employers to allow mid-year health insurance elections — in addition to the annual open enrollment that begins in the fall.
Depending on your employers’ decision, you may have the following options:
- Sign up for, drop or change insurance plans, including high-deductible options that come with Health Savings Accounts (HSAs).
- Adjust pre-tax contributions to a Flexible Spending Account (FSA).
- Apply unused 2019 FSA funds — normally a use-it-or-lose-it account — through the end of the year.
The lower monthly premiums for a high-deductible plan may be an enticing option if you’ve lost income or are concerned about the turbulent economic conditions.
However, that short-term decision to save money could be a costly one if you have a catastrophic health event.
More than half of those with the highest deductibles say they do not have readily available savings to cover those deductibles, according to a Kaiser Family Foundation/LA Times survey.
On the other hand, if there was ever a time to try a high-deductible plan, this mid-year enrollment offers the unique chance to make a six-month commitment to a plan change rather than an entire year.
If you’re considering swapping out your health care plan, we’re here to help you make the best decision by weighing the benefits and risks of each.
4 Questions to Ask Before Changing Your Health Insurance
If your employer has offered a mid-year open enrollment, you have more than a price tag to consider if you’re thinking about exchanging your higher monthly premiums for a high-deductible health plan (HDHP).
“It depends on their health, it depends on their consumption patterns and it depends on their threshold for risk and uncertainty,” said R. Ruth Linden, Ph.D., founder and president of Tree of Life Health Advocates in San Francisco.
So should you make the switch? Here are four questions to ask yourself to help you decide.
1. What Are My Options?
If your employer offers multiple health insurance plans, you have some comparison shopping to do.
Among the more cost-effective options for employers is the HDHP. These plans offer lower monthly premiums but also requires you to pay for more of your healthcare expenses before the insurance company starts kicking in.
Because these plans cost less for the employer, many companies will try to incentivize employees to sign up by offering pre-tax contributions to an HSA, which is basically a savings account that can only be used for health expenses.
The only way you can qualify for an HSA is by having an HDHP, but you can continue to use that savings account long after you leave a high-deductible plan (more on that later).
But if you’re choosing between a high-deductible plan and a traditional health insurance plan, you should compare each component’s value, advised Brian Haney, a Certified Family Business Specialist and vice president of The Haney Company, which specializes in providing employee benefits.
He suggested the following factors:
If you’re on an employer-sponsored plan, your employer is paying a portion while you pick up the rest of the monthly cost.
This is how much you’ll pay for services. If you have regular doctor appointments, this could be a very important number for you — and the amount may differ depending on whether you see your primary care doctor or a specialist.
This is the amount at which your insurance company starts kicking in for medical expenses.
This is the amount, typically a percentage, that you’ll split with your insurance company. The higher the coinsurance percentage your insurance company offers, the less you’ll pay.
If your employer offers contributions to either an HSA or FSA, factor that into the total amount.
Although it could be tempting to look at the cost you know you’ll pay every month — the premium — Haney noted that doing at least a little worst-case scenario planning could help provide a better picture of what each offers.
As an example:
Plan A has a $3,000 deductible and 100% coinsurance.
Plan B has a $1,500 deductible and 50% coinsurance.
Now, let’s say you had to go to the hospital and your bill was $6,000.
For Plan A, you’d have to pay to meet your deductible, but then the coinsurance kicks in, so your total amount would be $3,000.
For Plan B, you only have to pay $1,500 to meet your deductible, but you still have to pay 50% coinsurance for the remaining $4,500. At 50%, you’d need to fork over another $2,250 for a total of $3,750.
You should factor in all the categories when creating your comparison, Haney pointed out, but this example gives you a general idea of how one difference could affect your financial outcome.
2. How Healthy Am I?
And more importantly, how healthy do you think you’ll stay for the rest of the year?
“If you are a person who only goes to the doctor once or twice a year for your well-person exam… then a HSA/high-deductible health plan is likely a good decision to make at any age,” said Linden.
If you switch to a high-deductible plan with an HSA but still have an FSA from your previous plan, be sure you use up your FSA money first, since it’s a use-it-or-lose-it fund.
But even if you’ve never needed to go to the doctor for anything but your annual physical, Linden advised that you should seriously consider how you would handle a sudden change in health — whether it’s treating a worsening cough or an injured foot.
At what point would you consider forgoing care if you knew you had to pay a lot more for a doctor’s visit?
“One might be disincentivized from going to the doctor,” she said. “The difference between the $25 copay and a $90 copay might dissuade someone from making an appointment.”
Putting off care could lead to bigger medical issues down the road — or medical bills you can’t afford to pay. If that’s the case, sticking with a plan with lower copays might help you save money in the long run.
3. What Does the Rest of My Financial Picture Look Like?
When faced with any financial decision — including choosing your health care plan — avoid tunnel vision.
“It’s very easy to zero in on one thing, to the detriment of the bigger picture,” Haney said. “Before you start to try to save money on your premiums, you need to know: Can you cover the potential difference that you’re taking on?”
You can start by looking at your budget. Determine if you have enough money to cover the higher deductible without draining your savings. If not, are there other areas where you can cut your budget without sacrificing insurance coverage?
On the flip side, if you’re healthy and can easily cover the deductible with your current savings but have stayed with your old plan out of habit, you could be missing out on a financial opportunity.
With an HSA, you can start to invest your money once you reach your plan’s minimum threshold — typically around $1,000 to $2,000.
The money in an HSA grows tax-free, contributions up to the limit are tax-free and withdrawals for medical expenses are tax-free. If you’re keeping score, that’s a lot of tax-free money.
And an HSA is yours forever, so even if you end up leaving the high-deductible plan, you get to keep that account. So if you have enough savings to pay for medical expenses out of pocket, you could leave your HSA untouched and let it grow with the market.
When you retire, you’ll be able to use that HSA to pay for the inevitable increase in age-related medical costs without having to dip into your other retirement accounts.
“What we’re seeing is with retirees, one area where there is a woefully inadequate amount of funds set aside is in the area of medical expenses,” Haney said.
4. How Secure Is My Job?
If you’re on a traditional health insurance plan through your employer and are worried you might lose your job in the next few months, this might be the time to swap your traditional plan for a high-deductible version.
If you can use the time you have with your current employer to build up your HSA, you can use those funds to help pay for medical expenses after you lose your job — including COBRA premiums.
This wouldn’t be a solution if you’d struggle to cover the deductible and you don’t have a lot of time to build up your HSA, but you should at least consider this option to continue your medical coverage if you become unemployed.
Ask your plan administrator if you can get credit for what you’ve paid so far this year for your deductible so you don’t have to start over mid-year.
But if you’re at a job you consider to be relatively secure and you’re stressed out about the coronavirus striking, this might not be the time to take on an additional risk of a new plan.
“If your health insurance is working for you, if you’re able to access the care you need, if you can pay for it, your employer is contributing to your premiums, stay the course,” Linden said. “You’ll have an opportunity in six months to rethink your options.
“If it ain’t broke, don’t fix it.”
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.